On Wednesday, JPMorgan (NYSE:JPM) updated its outlook on General Motors (NYSE:GM) shares, raising the price target to $61 from $60 and maintaining an Overweight rating. The revision follows GM's robust second-quarter earnings performance, which outpaced expectations and contributed to the firm's optimistic stance.
General Motors reported second-quarter earnings on Tuesday that exceeded analysts' forecasts, with earnings before interest and taxes (EBIT) reaching $4.4 billion. This figure surpassed even the highest estimates, outdoing the predicted $4.2 billion and JPMorgan's own $4.0 billion expectation, as well as the Bloomberg consensus of $3.8 billion.
The impressive results come on the heels of GM's strong 2024 outlook shared in January and a series of positive developments including an unexpected increase in guidance during the first-quarter earnings report and a further raise in full-year 2024 guidance announced today.
Despite the positive earnings report, GM shares experienced a decline of 6.4% during Tuesday's trading session, underperforming against the S&P 500's marginal 0.2% drop. The market's reaction is attributed to investor concerns that General Motors' management signaled limited potential for further full-year guidance increases.
Factors contributing to this outlook include planned marketing expenditures for the latter half of the year and an expected increase in the production of lower-margin electric vehicles.
General Motors has also adjusted its pricing expectations, now forecasting a 1.0% to 1.5% decline in U.S. pricing for the second half of the year, an improvement from the initial full-year projection of a 2.0% to 2.5% decline. This revised pricing outlook, according to JPMorgan, accounts for approximately $1.4 billion of the improved full-year EBIT forecast, which now stands at a midpoint of $14.0 billion, up from $12-$14 billion at the start of the year.
JPMorgan has increased its own full-year 2024 EBIT estimate for GM to $14.0 billion, a $1.0 billion enhancement following the second-quarter performance. This upgrade reflects a $0.6 billion improvement for the second half of the year based on the strong second-quarter results.
However, the firm acknowledges that the consensus estimate, which was already higher at $13.9 billion before the earnings release, might see a reduction for the second half of 2024 after the recent earnings beat.
In other recent news, General Motors Co. (NYSE:GM) also announced plans for upcoming vehicle launches, including EV models, and shared its strategy for autonomous driving through its subsidiary, Cruise.
Despite challenges in the Chinese market, GM is restructuring its business there to return to profitability. The company has raised its full-year guidance for 2024, indicating confidence in its ongoing performance. GM's active share repurchase program, with plans to retire more shares in the fourth quarter, is another recent development.
Investors may also be interested in GM's plans to open the Orion assembly plant as a battery electric truck plant in mid-2026 and its ongoing efforts to optimize battery chemistry and form factors to meet customer needs.
InvestingPro Insights
As General Motors (NYSE:GM) navigates the current fiscal year with a strong earnings performance, insights from InvestingPro provide additional context for investors considering the company's stock. With a market capitalization of $52.89 billion and a notably low P/E ratio of 5.71, GM is trading at a discount relative to its near-term earnings growth potential. This is further underscored by an adjusted P/E ratio for the last twelve months as of Q1 2024 at 4.95, indicating a potentially undervalued stock.
InvestingPro Tips suggest that GM's aggressive share buyback strategy and the positive revisions from 7 analysts on their earnings expectations for the upcoming period could signal confidence in the company's financial health. Moreover, GM's valuation implies a strong free cash flow yield, which is a key metric for investors seeking companies with robust cash generation capabilities relative to their share price.
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